Remittances, consumption and economic growth in Kerala : 1800-2000

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Abstract

Kerala’s lopsided development, human development before
economic development, has been characterized by steady economic
growth since 80s with acceleration in the 90s. The leading sources of
growth are the services (tertiary sector) instead of the conventional
commodity producing sectors (primary and secondary). Further analysis
shows that these services are non-tradable in general and in particular,
transport, trade, hotels and restaurants, telecommunication and other
services. The surge in growth has emanated mainly from the increase in
consumer demand in favour of durable goods. The inability of the
manufacturing sector to meet the growing demand chiefly from migrant
households for consumer durables has resulted in the increase in regional
trade and transport. In the case of telecommunication, the demand came
mostly from the large number of ‘spouses away households’ and from
‘elderly living alone households’ in the state for keeping in touch with
their near and dear ones living within and outside the state. The combined
effects of forward and backward linkages of the growth in tourism, trade
and transport have resulted in the growth of hotels and restaurants. The
durable goods accumulated by the households in the 80s have generated
the growth of services in the informal sector for the repair, maintenance
and servicing of these goods in the 90s. In addition, the mushrooming
of private institutions in health and education has also contributed
much to the growth of other services during the period.
Commercial banks have not played any significant role in the
intermediation of the huge surplus generated by foreign remittances for
the growth observed in the 80s and 90s since the credit-deposit ratio
continues to show its declining trend during the period. In the absence
of proper accounting of the savings generated in the economy, it is
argued that source of finance for the growth of the service sector has come from either the informal credit market or own-funds or both. This
consumption-led growth cannot be sustained unless the state actively
involves in locating the hidden markets for skilled labour globally and
provide world-class training facilities for such jobs for their migration.
This would mean that the growth strategy should concentrate on export
of services based on skilled manpower and the export of skilled manpower
itself instead of labour intensive and land-intensive traditional
commodities. Another strategy for the sustainable growth is to increase
the share of the fast growing domestic tourism by innovating institutions
for cost effectiveness to attract such tourists. Finally state should create
forward linkages of the huge consumer durables acquired by the
households with the rapidly growing informal sector for repair,
maintenance and servicing of durable goods. This involves, among other
things, reverse engineering for developing the production technology
of spare parts and organising it at the household level instead of factory
level for price competitiveness.
Key words: remittances, lopsided development, linkages, durable goods,
migration
JEL Classification: 053, E21, F 22